Tuesday, October 21, 2014

LITTLE PONY AND TEACHING ECONOMICS?

“Everyone quotes that "invisible hand of the free market" bit from Adam Smith, but what no one talks about is there's 50 pages before it where he's talking about how that free market has to be heavily regulated in order for the invisible hand to operate. Somewhere along the line that got lost. The best comparison I've heard is if you have an NFL football game, you don't just get rid of all the rules and say, "Well, it's a free game" and have guys attacking each other in the parking lot and throwing rocks at each other. You have to have rules in order for the economy to operate.”

Comment

Follow the link to approach Adam McKay’s slant linking ‘little Pony’s” to Adam Smith - an allusion lost on me - and a typically confused notion of what Adam Smith was using the invisible-hand metaphor for. That’s not Adam McKay’s fault at all - the tainted honour for that confusion goes back to Paul Samuelson in 1948 and his all-time, best-selling “Economics: an analytical introduction” (c.5 million plus used sales markets and scores authors of imitation texts).Its now an endemic ideological myth that dominates most modern economics teaching.

I have discussed this myth many times on Lost Leagcy - scroll down my blog posts to read why.

Smith never said there was a "invisible hand of the free market”. In fact on the three-only ocasions in which he used the IH metaphor he referred first to the pagan superstitions of classical Rome, second to the ‘proud and unfeeling” landlords in pre- and post feudal Europe, and third, and lastly, to merchants in Europe who happened to be, what we would call, risk-averse to sending their capital abroad and thereby chose instead to invest it locally, which they regarded as safer.

In short, the “free market” was not an issue, and anyway did not exist in any of the three contexts to which he referred. Indeed, in mercantile Europe, including Britain and Ireland, there was no question of there being ‘free-markets”, which was precisely why he wrote his Wealth of Nations!

He also used the “invisible hand” as a metaphor, not as a description of reality. He referred to the subjective motives for agents that caused them to take certain actions: in Rome it was in fear of being struck by “Jupiter’s lightning bolts” that kept pagan believers indoors during thunder storms; in slave-farming and serfdom societies it impelled landlords to feed their inferiors who worked his fields because with their forced labour and regular food they could not labour and the landlord’s ‘greatness’ would crumble. Without the slaves/serfs being fed, they could not labour; and in mercantile Europe, supplying the local economy preferentially,added to “domestic investment and employment”.

The metaphor of the “invisible hand” describes the hiddden motivations, that caused them to take actions, which had their intended consequences: fears of lightning kept potential conspirators indoors and not out and about in pursuit of mischief against Rome; feeding the labourers kept the farming systems in motion, and insecurity felt by merchants added to domestic prosperity.

However, motivated actions besides their intended consequences could also have unintended consequences (stability in Rome, propagation of the human species in the long run, and higher domestic output and employment.

This analysis also fits Adam Smith’s teaching on the role of metaphors: “to describe in a more striking and interesting manner” their “objects”, which objects in these three cases are identified in my (and Smith’s) explantions above.

Adam McKay is a world away from Adam Smith’s use of the “invisible hand” metaphor. The long-chain of post-Samuelson modern economists have misread Adam Smith I don’t think the ‘Little Pony’s can help his readers on this occasion.

Airth 10But that's the problem! What Samuelson started he diverted the discipline o economics into a side-tracked dead end.I am fixated in resolving the problem - true. Economics is perverted by obsessions with invisible hands operating in it, though nobody is quite sure what is is? Gavin

The dead end was the consequence of Samuelson misunderstanding Smith's use of the `invisible hand metaphor was in the false belief that a mysterious, even 'miraculous' IH operated in a modern economy to ensure optimal production in a perfectly competitive market economy and public benefits.This was picked up by Rightest and Leftist ideologues to lead modern economists into the 'no State/no markets deadlock that paralyses modern political economies.That he spread of IH beliefs matches sales of Samuelson's textbook (19 editions to 2010 and 5 million sales) as shown statistically suggests there is a connection (see Kennedy: 'Myth of the Invisible Hand'. Before Samuelson, mentions of the IH was minimal at a few dozen references from 1776 to 11948).Gavin

I don't thing Samuelson diverted economics into a dead end. In fact he liberated it.

Economics and money matters were things that one considered 'grubby' in polite company. In Britain merchants and trades people were looked down on by the upper classes. That attitude fostered socialism in Britain and its economic decline.

Samuelson and teachers like him helped reverse that thinking, cultivating leaders like Margret Thatcher. Thatcher brought back economic disciple to Britain, thanks to Samuelson and teachers like him, who shone a brighter light on the workings of economics. If it took the distorting of Adam Smith's 'invisible hand' to do that, so be it.

airthOf course Samuelson did much more economics than mislead generations on a single metaphor. His Foundations and much of his famous textbook die much to educate generations of readers in economics and enthuse them too.His textbook attracted the ire of several professors who considered him a 'communist' and worthy of the attention of the FBI. This charge could have ended his academic career almost before it began (UnAmerican activities zealots).However, his passing remark about 'selfish' invisible hands etc., has been disastrous for economics in it diverted millions into parading Adam Smith as banner for the extreme rightist ideology of the so-called IH guiding the market economy, and so on.That is metaphorically a 'dead end'. See Google Alerts for a daily dosage of the elevation of the IH to its current position of main idea of his on how the economy supposedly works.Gavin